Thirst for organic milk outpaces supply

WESTVILLE, N.Y. – “Got milk?” is getting to be a difficult question when it comes to organic.

Because even as more consumers are willing to pay premium prices for organic milk, supermarkets are struggling to keep it on the shelves as high feed and fuel prices have left some organic dairy farmers unable to keep up with demand.

“The market has surged faster than supply,” said George Siemon, CEO of Wisconsin-based Organic Valley, the nation’s largest cooperative of organic farmers, “and at the same time we had high feed costs reduce supply, so we had a double hit here.”

Ken Larson, an Ottertail, Minn., dairy farmer who supplies to Organic Valley, says he has noticed that the company is seeking more producers.

“If they don’t need milk, they won’t take on more producers,” he says. “It’s controlled growth.”

Organic milk shortages are nothing new. As the milk – which federal regulations require be from cows fed organic feed and free from production-boosting synthetic hormones – rose in popularity during the past decade, there haven’t always been enough farmers to meet demand (it can take four years to transition a conventional dairy farm to organic, Larson says).

Some relief is expected with the seasonal spring boost in production. But industry watchers say this shortage is more worrisome because of the alarming jumps in the price of organic corn and other feed coupled with higher fuel costs.

After a recent dip during the recession, sales of organic milk – which can sell for twice as much or more as conventional milk – are strong again.

Sales for organic whole milk were up 16 percent from January through November of last year compared with a year earlier, even as sales of conventional milk declined, according to federal agricultural statistics.

Darby Smith, co-owner of Sydney’s Health Market in Moorhead, said an organic milk from Crystal Ball Farms in Osceola, Wis., is their best seller.

“We sell over 200 bottles a week now,” he said. “It’s the best milk in town.”

Smith added that Crystal Ball’s milk prices have stayed stable because it is produced by cows that eat grass rather than expensive organic corn.

Molly Keveney, a spokeswoman for Horizon Organic, the No. 1 selling organic milk-brand, estimated a 7 percent growth in organic milk demand in a time of flat supply.

Some farmers have switched to less expensive feed, but that reduced production. Griffin, who runs Raindance Organic Farm 55 miles west of Albany, is losing money as costs outrun prices. She sold 15 cows in the fall so she could afford to buy feed for her remaining cows.

Others, like Larson, say the key is to raise your own grain. “Organic corn is about $13 (per bushel) now,” he says. “You’ve got to raise your own crops. It’s the key to being successful.”

In Elko, Minn., Tim Zweber of Zweber Farms said his family sold about 20 milking cows since the fall because of the feed costs, leaving them with about 100. Zweber – who like Griffin is a member of the Organic Valley cooperative – said the price his family receives for its milk versus the high costs of producing it results in margins that are very tight.

“If you can’t make any money doing it, take the word ‘sustainable’ out of organic,” Zweber said with a laugh.

In fact, some struggling farms are switching back to conventional milk or leaving the dairy business entirely.

The farmers’ plight illuminates an unusual feature of the U.S. dairy economy: Most farmers do not set their own milk prices. Organic farmers typically enter into contracts with processors. This provides stability compared with the month-to-month pricing of conventional milk.

That’s one reason Larson said he switched his family dairy, Silver-Dust Farm, from conventional to organic in 2006. The guarantee of a stable pay check has made it possible for his small operation to survive for the next generation, he says.

Even so, some farmers tied to co-op agreements say it has caused problems once food and fuel costs took off.

Both Organic Valley and Horizon Organic, owned by Dean Foods Co., have raised the prices they pay to farmers to account for higher production costs.

Larson said the co-op’s farmers received a raise of $1 per 100 pounds of milk in August, and will receive a $2 raise in March.

“That will offset the increase in production costs,” he says.

In Minnesota, some farmers are banding together to share fuel costs so shipping isn’t as expensive, says Noreen Thomas, a Moorhead organic farmer who, along with husband Lee, sells organic hay to dairy producers all over the country.

Though no one knows when supply will catch up with demand, many expect it to at least ease in a couple of months with the production boost that comes each spring when the fields are in bloom and cows can graze.